Local Issues, Local Voice

November 3, 2016

Making Public-Private Partnerships Work in Myanmar

Public-private partnerships (PPPs) have been used as a mechanism to build and upgrade infrastructure in the developing countries of Southeast Asia for several decades. However, PPPs are relatively new to Myanmar.

An engineer surveys a site at Thilawa special economic zone. Photo: Zarni Phyo / The Myanmar Times

The country is lagging behind the other ASEAN member states, and its development needs are enormous. Myanmar can benefit from PPPs for both hard infrastructure (like roads) and soft infrastructure (like education). Recent political changes have demonstrated the country’s commitment to developing its relations with international actors such as the Asian Development Bank (ADB), the International Finance Corporation, the World Bank and others, promoting PPPs. All this promises new opportunities. The question is – how to achieve this and make PPPs function in Myanmar?

The government of Myanmar deserves credit for its commitment and enthusiasm to learn from experiences of other countries. Recently, it launched the website Myanmar Public-Private Partnerships. The government could use PPPs to build much-needed infrastructure as well as attract foreign direct investment. In addition come numerous pressing issues, like the lack of cross-sector coordination, insufficient means to utilise private investment, limited governmental ability to manage such projects, as well as difficulties in determining contract terms and value that are also related to the country’s underdeveloped tax system.

PPPs have two dimensions: technical and social. Proper implementation of technicalities is essential for a successful PPP project and requires significant expertise. Long-term planning, full cost and revenue estimation, contract enforcement, market-based procurement and risk-management mechanisms – these are essential factors. At the core of any PPP is a proper financing mechanism; the fiscal expenditures should be constantly controlled. South Africa, for instance, has created a special Treasury unit that monitors and controls the fiscal costs of planned and ongoing PPPs.

However, even if the technicalities are taken care of, there is no guarantee that a project will succeed: It may lack support from the public and even face opposition. Broad opposition to infrastructure projects or payment for services (eg road fees) may spark public discontent and protests. International experience shows that willingness to pay for services has often not even been assessed in advance. Stakeholder consultations are essential at all stages, to ensure project sustainability. Moreover, those who are intended as the key beneficiaries of new infrastructure often lack the knowledge and skills to apply it in practice.

PPPs in developing countries are frequently narrow, focused solely on hard infrastructure. Priority has gone to infrastructure-driven PPP projects, but soft infrastructure is equally important for a country like Myanmar – education in particular. Years of low investment in education have caused Myanmar to lag behind its ASEAN counterparts, despite the government’s recent efforts to tackle these issues by making primary education free and improving the quality of tertiary education. Overcrowded and mismanaged schools in rural areas still struggle to provide quality education, and dropout rates are high. Rapid and effective reform in the education sector is what Myanmar needs today, and PPPs could offer solutions for the country’s crumbling education sector.

Through the introduction of subsidised low-cost private schools, Myanmar could achieve universal access to quality education. But how would subsidised public schools work? Myanmar can encourage and help the private sector to develop affordable private schools in rural areas by providing loans to build the schools and by giving tax breaks to these low-cost schools. Most importantly, the public sector could subsidise low-cost schools. To do this, the government should create a PPP network of schools. For schools seeking to join the program, the government could set upper limits on tuition fees charged, and minimum requirements for provision of facilities like school libraries – after which the public sector would act as an overseer. The public sector would focus on monitoring, setting standardised tests and conducting nationwide standardised trainings; the private sector could focus on improving facilities. The network would promote competition in the education sector – and improve the quality of education provided in rural areas.

Strong institutions are necessary to implement PPPs successfully. Given the lack of mature institutions in Myanmar, there is a risk that PPP projects may fail. On the other hand, PPPs are also a way to nurture precisely such institutions. A major advantage of implementing large-scale public-private sector projects is the mutual learning process that is essential for the emergence of strong institutions. Both parties learn while they interact with each other. Shared responsibility can build mutual trust – another bonus from PPPs.

PPPs have at times been criticised for failing to deal with problems of corruption: and indeed, PPP projects sometimes fail due to mismanagement and corrupt practices. A project may undergo numerous revisions during the implementation phase, perhaps significantly changing the initial set-up and opening the door to corruption and other unacceptable behaviours. While that may be the case, PPPs can also make it easier to identify corruption, if they are implemented with proper processes of multi-stakeholder interaction, making them more transparent than if the state were the sole implementer.

Both the public and private sector in Myanmar lack the experience and capacity to implement large-scale projects on their own. Joining forces in PPPs can give them better chances of meeting the country’s development needs. However, Myanmar is currently running a budget deficit and has a weak tax system, making it a major challenge to finance PPP projects. For that reason, the government would be well advised to rely on foreign funding, and should seek to improve the framework conditions for implementing PPPs.